Nuclear Decommissioning Funds; Revised Schedules of Ruling Amounts

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8758]

RIN 1545-AU28

Nuclear Decommissioning Funds; Revised Schedules of Ruling

Amounts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to requests

for revised schedules of ruling amounts for nuclear decommissioning

reserve funds. The regulations amend existing regulations to ease the

burden on affected taxpayers by permitting electing taxpayers with

qualifying interests in nuclear power plants to adjust their ruling

amounts under a formula or method rather than by filing a request for a

revised schedule of ruling amounts.

DATES: The final regulations are effective January 20, 1998.

FOR FURTHER INFORMATION CONTACT: Peter Friedman, (202) 622-3110 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations

has been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

the control number 1545-1511. Responses to this collection of

information are voluntary.

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless the collection of

information displays a valid control number.

The estimated average annual burden per recordkeeper is 5 hours.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be sent to the Internal

Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,

DC 20024, and to the Office of Management and Budget, Attn: Desk

Officer for the Department of the Treasury, Office of Information and

Regulatory Affairs, Washington, DC 20503.

Books or records relating to a collection of information must be

retained as long as their contents may become material in the

administration of any internal revenue law. Generally, tax returns and

return information are confidential, as required by 26 U.S.C. 6103.

Background

This document contains final regulations under section 468A of the

Internal Revenue Code. Section 468A was added to the Internal Revenue

Code by section 91(c) of the Tax Reform Act of 1984 (Pub. L. 98-369).

Significant amendments were made to section 468A by section 1917 of the

Energy Policy Act of 1992 (Pub. L. 102-486).

Section 468A(a) allows an electing taxpayer to deduct the amount of

payments made by the taxpayer to a nuclear decommissioning reserve

fund. Section 468A(b) limits the amount of these payments for any

taxable year to the lesser of the ruling amount or the amount of

decommissioning costs included in the taxpayer's cost of service for

ratemaking purposes for that taxable year.

Section 468A(d) provides that no deduction shall be allowed unless

the taxpayer requests, and receives, a schedule of ruling amounts from

the Secretary. A ruling amount is, with respect to any taxable year,

the amount determined by the Secretary as necessary to (1) fund that

portion of the nuclear decommissioning costs of the taxpayer with

respect to the nuclear power plant which bears the same ratio to the

total nuclear decommissioning costs with respect to the nuclear power

plant as the period for which the nuclear decommissioning fund is in

effect bears to the estimated useful life of such nuclear power plant;

and (2) prevent any excessive funding of such costs or the funding of

such costs at a rate more rapid than level funding, taking into account

such discount rates as the Secretary deems appropriate. Section

468A(d)(3) provides that the

[[Page 2893]]

Secretary shall, at least once during the useful life of the nuclear

power plant (or more frequently, upon the request of the taxpayer),

review and, if necessary, revise the schedule of ruling amounts.

Section 1.468A-3 sets forth the rules relating to the determination

of ruling amounts. The regulations permit the use of a formula or

method for determining a schedule of ruling amounts (in lieu of a

schedule of ruling amounts specifying a dollar amount for each taxable

year), but only if the public utility commission establishing or

approving the amount of decommissioning costs to be included in cost of

service for ratemaking does not estimate the cost of decommissioning in

future dollars.

The regulations contain provisions for the review and revision of

schedules of ruling amounts and set forth circumstances under which a

taxpayer must request a revision to its schedule of ruling amounts. In

general, a schedule of ruling amounts must be reviewed at 10 year

intervals. If the schedule is determined under a formula or method,

however, the period between reviews may not exceed 5 years.

The regulations provide that a taxpayer may request an elective

review of its schedule of ruling amounts. A taxpayer seeking to

maximize its deductions under section 468A generally needs to request

an elective review of its schedule of ruling amounts each time a public

utility commission changes previously established amounts of

decommissioning costs. A notice of proposed rulemaking (REG-209828-96)

relating to these rules was published in the Federal Register on

December 23, 1996 (61 FR 67510). The notice proposes to amend

Sec. 1.468A-3(a)(4) by eliminating the restriction on the use of a

formula or method for determining a schedule of ruling amounts and to

revise the mandatory review requirements.

Written comments were received in response to the notice of

proposed rulemaking, and a public hearing was held on May 13, 1997.

After considering the written comments and the statements made at the

public hearing, the proposed rules are adopted as modified by this

Treasury Decision.

Explanation of Provisions

The final regulations provide that a taxpayer may request approval

of a formula or method for determining a schedule of ruling amounts

(rather than a schedule specifying a dollar amount for each taxable

year) that is consistent with the principles and provisions of the

rules relating to the determination of ruling amounts.

The final regulations ease the filing burden on taxpayers by

permitting them to adjust their ruling amounts under a formula or

method (rather than by filing a request for a revised schedule of

ruling amounts). Thus, a taxpayer may maximize its deductions under

section 468A without requesting a revised schedule of ruling amounts

each time a public utility commission changes the amount of

decommissioning costs included in the taxpayer's cost of service if,

under the taxpayer's formula or method, the commission's action results

in a corresponding change in ruling amounts. The commentators all

agreed with the expanded availability of ruling amounts based on

formulas or methods.

In addition, the final regulations modify the mandatory review

provisions applicable to schedules of ruling amounts determined under a

formula or method. The proposed regulations eliminate the rule

requiring review of those schedules after 5 years but make those

schedules subject to the general rule requiring review at 10 year

intervals. In addition, the proposed regulations require taxpayers to

request a revised schedule of ruling amounts if, beginning with the

second taxable year during which the most recently issued formula or

method is in effect, the ruling amount for a taxable year (1) differs

by more than 25 percent from the ruling amount for any preceding

taxable year during which such formula or method was in effect; or (2)

differs by more than 10 percent from the ruling amount for the

immediately preceding taxable year. The commentators generally favored

either a retention of the 5 year review period without limits on

differences in ruling amounts or an increase in the percentage by which

ruling amounts are permitted to differ. In response to these

suggestions, the final regulations retain the 5 year review

requirement, increase the overall percentage by which ruling amounts

may differ, and eliminate the 10 percent limitation on changes from one

year to the next.

Some commentators suggested that all elements of a formula should

be permitted to be variable. Nothing in the proposed regulations was

meant to suggest otherwise. In order to afford different taxpayers

maximum flexibility in using a formula, the regulations do not specify

which elements must be fixed and which must be variable. Instead, the

formula, itself, will determine whether an element is fixed or

variable. A fixed element is one that is assumed to retain the same

value regardless of action by the applicable public utility commission.

Some commentators suggested that a taxpayer that recently received

a schedule of ruling amounts should be permitted to vary this schedule

using a formula or method that has not been approved by the Service.

This suggestion is inconsistent with the Service's obligation to issue

and review schedules of ruling amounts and is not adopted.

Several commentators requested that the existing user fee for

obtaining a schedule of ruling amounts under section 468A is excessive

and should be waived or reduced. Because this subject is not within the

scope of this regulations project, it is not addressed in the final

regulations.

Finally, some commentators suggested that the regulations should

address the situation where a taxpayer, based on a good faith but

erroneous calculation of the percentage limitations, fails to comply

with the mandatory review provisions. Partly in response to this

suggestion, the percentage limitation has been simplified.

Effective Date

These regulations are applicable for requests for schedules of

ruling amounts made on or after January 20, 1998.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It has also been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

does not apply to these regulations. It is hereby certified that the

collection of information in the regulation will not have a significant

impact on a substantial number of small entities. This certification is

based on the fact that taxpayers with qualifying interests in a nuclear

power plant are generally large entities. Thus, because the regulation

applies only to these taxpayers and does not impose a collection of

information on small entities, the Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to section 7805(f) of the Internal

Revenue Code, the notice of proposed rulemaking preceding these

regulations was submitted to the Chief Counsel for Advocacy of the

Small Business Administration for comment on its impact on small

business.

Drafting Information

The principal author of these regulations is Peter Friedman, Office

of Assistant Chief Counsel (Passthroughs and Special Industries).

However, other

[[Page 2894]]

personnel from the IRS and Treasury Department participated in their

development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.468A-2 is amended as follows:

1. The text of paragraph (f)(3) following the heading is designated

as paragraph (f)(3)(i).

2. Paragraph (f)(3)(ii) is added.

The addition reads as follows:

Sec. 1.468A-2 Treatment of electing taxpayer.

* * * * *

(f) * * *

(3) * * *

(i) * * *

(ii) The requirement of this paragraph (f)(3) does not apply if the

taxpayer determines its schedule of ruling amounts under a formula or

method obtained under Sec. 1.468A-3(a)(4) and the cost of service

amount is a variable element of that formula or method.

* * * * *

Par. 3. Section 1.468A-3 is amended as follows:

1. Paragraph (a)(4) is revised.

2. Paragraph (e)(5) is added.

3. Paragraphs (i)(1)(ii)(A), (i)(1)(iii)(A)(3), and (i)(1)(iii)(B)

are revised.

4. Paragraph (i)(1)(iii)(C) is added.

The revisions and additions read as follows:

Sec. 1.468A-3 Ruling amount.

(a) * * *

(4) The Internal Revenue Service will approve, at the request of

the taxpayer, a formula or method for determining a schedule of ruling

amounts (rather than a schedule specifying a dollar amount for each

taxable year) that is consistent with the principles and provisions of

this section. See paragraph (i)(1)(ii) of this section for a special

rule relating to the mandatory review of ruling amounts that are

determined pursuant to a formula or method.

* * * * *

(e) * * *

(5) A formula or method obtained under paragraph (a)(4) of this

section may provide for changes in an estimated date described in

paragraph (e)(1) or (2) of this section to reflect changes in the

ratemaking assumptions used to determine rates (whether interim or

final) that are established or approved by the applicable public

utility commission after the filing of the request for approval of a

formula or method.

* * * * *

(i) * * *

(1) * * *

(ii)(A) Any taxpayer that has obtained a formula or method for

determining a schedule of ruling amounts for any taxable year under

paragraph (a)(4) of this section must file a request for a revised

schedule on or before the earlier of the deemed payment deadline for

the fifth taxable year that begins after its taxable year in which the

most recent formula or method was approved or the deemed payment

deadline for the first taxable year that begins after a taxable year in

which there is a substantial variation in the ruling amount determined

under the most recent formula or method. There is a substantial

variation in the ruling amount determined under the formula or method

in effect for a taxable year if the ruling amount for the year and the

ruling amount for any earlier year since the most recent formula or

method was approved differ by more than 50 percent of the smaller

amount.

* * * * *

(iii) * * *

(A) * * *

(3) Reduces the amount of decommissioning costs to be included in

cost of service for any taxable year;

(B) The taxpayer's most recent request for a schedule of ruling

amounts did not provide notice to the Internal Revenue Service of such

action by the public utility commission; and

(C) In the case of a taxpayer that determines its schedule of

ruling amounts under a formula or method obtained under paragraph

(a)(4) of this section, the item increased, adjusted, or reduced is a

fixed (rather than a variable) element of that formula or method.

* * * * *

Par. 4. Section 1.468A-8 is amended by adding paragraph (b)(12) to

read as follows:

Sec. 1.468A-8 Effective date and transitional rules.

* * * * *

(b) * * *

(12) Use of formula or method. Section 1.468A-2(f)(3)(ii) and

Sec. 1.468A-3(a)(4) (to the extent it permits a formula or method when

the applicable public utility commission estimates the cost of

decommissioning in future dollars), (e)(5), (i)(1)(ii)(A) (to the

extent it requires the taxpayer to file a request for a revised

schedule because of a substantial variation in ruling amounts), and

(i)(1)(iii)(C) apply only to requests for a formula or method submitted

on or after January 20, 1998 and to formulas and methods obtained in

response to those requests.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 5. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Par. 6. In Sec. 602.101(c), the entry for 1.468A-3 in the table is

revised to read as follows:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

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Current OMB

CFR part or section where identified or described control No.

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* * * * *

1.468A-3................................................... 1545-1269

1545-1378

1545-1511

* * * * *

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Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

Approved: January 9, 1998.

Donald C. Lubick,

Acting Assistant Secretary of the Treasury (Tax Policy).

[FR Doc. 98-1177 Filed 1-16-98; 8:45 am]

BILLING CODE 4830-01-U